Oil and Gas Investment in East Africa

According to the EIA, East Africa holds an estimated 7.2 billion barrels of proven oil reserves and 11.2 Tcf of proven gas reserves which makes up about 6 percent of Africa's proven oil reserves and 2,19 percent of the continents proven gas reserves.[1] Particularily the oil discoveries in Uganda as well as the discovery of natural gas in Tanzania and Mozambique have increasingly attracked investors to the region since 2006.[2] Mozambique could be the first country in East Africa to develop the capability to export liquefied natural gas (LNG), ahead of Tanzania.[3]

Investment History

According to the EIA, Kenya's investment history is similar to that of Uganda, Tanzania, Kenya, Madagascar and Mozambique.[4] Exploration activities in this area go back more than 100 years, with the first exploration taking place in Uganda and Madagascar at the beginning of the 20th century.[5]

However, until recently there has been limited success and investors were also detered by the prevalence of conflict and instability in the area. [6] This has begun to change, particularly with the discovery of significant quantities of oil in Uganda in 2006 and the discovery and extraction of natural gas in Mozambique and Tanzania.[7] According to a statement by an oil company executive cited in the Deloitte Guide to Oil and Gas in East Africa, more hydrocarbons have been discovered in East Africa in the last 2 years than anywhere else in the world. [8]

Asian investors

In April 2013, Bloomberg wrote that Asia's "state-owned oil companies are making in-roads in the contest for East Africa’s energy reserves, gaining power in export projects that Western companies such as Shell used to dominate".[10] Currently major Asian investors in East Africa's oil and gas sector are CNOOC, which is one of the leading companies conducting exploration and development in Uganda, and CNPC, which agreed to pay Eni US$4.2 billion for a share in Mozambique's Rovuma offshore region and planned LNG plant in March 2013.[11]

Other major Asian investors include India's Bharat Petroleum Corp Ltd. and a unit of India's Videocon Industries which own together 10 percent of Mozambique's Area 1 block.[12] Further, Japan's Osaka Gas and the Tokyo Electric Power Company (TEPCO) have been in talks with Anadarko and its partners over future LNG sales in Mozambique since Janaury 2012.[13][14]

But also East African countries themselves are seeking out for investment from Asia. In August 2013, for instance, newly elected President Uhuru Kenyatta, set out on an eight-day trip to Russia and China to attract investment into Kenya's oil and gas sector.[15]

Industry experts name the geographic proximity to Asian markets, its political security (compared to major exporters from the Middle East) [16] as well Asia's growing energy demand as reasons for this increased investment interest.[17] For instance, the World LNG Report of 2011 states that Japan and South Korea import almost 50 percent of the world’s LNG demand alone and that India is the sixth largest importer of LNG, right behind China.[18] Also, since 2012 Indonesia and Malaysia import LNG and Singapore and Israel are said to build re-gasification facilities and thereby prepare to import LNG.[19] With respect to the favourable proximity to these markets, the investor blog The Next Oil Rush estimates that it takes about 19 days for an oil tanker from Lamu to Shanghai, compared to 27 days from Soyo, Angola, to Shanghai and about 17 days from Saudi Arabia or Iran to Shanghai.[20]